Why I’m not Worried About the End of the Mining Boom

The more I investigate the bigger picture of what is happening in Australia’s resources industry and the impact it will have on the economy (and property markets), the more I am convinced the naysayers will ultimately be proven wrong.

I don’t have to tell you that there has been a fair amount of talk recently about the supposed end of the resources boom, which has some property investors worried.

While I am not involved directly in the resources industry, I do invest a lot of time into researching issues that could potentially affect our clients and this always involves looking beyond the mainstream headlines.

Most of the negativity in the media has focused on the recent cancelling or postponing of a number of projects by major mining companies, falling commodity prices and waning demand from China. But the more I investigate the bigger picture of what is happening in Australia’s resources industry and the impact it will have on the economy (and property markets), the more I am convinced the naysayers will ultimately be proven wrong. Here are some of my reasons:

Plenty of investment ahead
BHP Billiton’s decision to shelve $US50 billion ($A47.89 billion) of major projects, including an expansion of its massive Olympic Dam uranium mine in South Australia, made for some big headlines. But such announcements need to be put into perspective.

Firstly, they relate to planned projects not started or completed ones. Secondly, recent postponements or cancellations make up a very small component of the total planned investment pipeline. Data suggest the value of all projects deleted over the past 13 months (including Olympic Dam and Outer Harbour) total $51bn or 11% of all advanced and less advanced projects.

In WA alone, the investment pipeline is extremely healthy. According to the WA Department of Mines and Petroleum, more than $180bn of projects are committed or under consideration in the state. This includes the $43bn Gorgon LNG project, the $29bn Wheatstone LNG project, Hancock Prospecting’s $9.5bn Roy Hill iron ore mine and Citic Pacific’s $8bn Sino Iron project.

The consensus seems to be that based on the active projects yet to be completed, iron ore-related capital spending is likely to peak this financial year, and coal and liquid natural gas related investment is likely to peak in 2014-15. But even if the peak is a few years away, many experts expect investment to remain high beyond that time-frame.

The Chinese juggernaut will continue

China’s economic growth over the past 10 years has been nothing short of staggering. And while the growth rate has recently decelerated, it still remains at an impressive level. Based on some people’s reactions you would think that China’s economy is contracting, which it certainly isn’t.

The rise in demand for our resources from China over recent years is not a short term phenomenon; it reflects a structural change in the world economy driven by China’s long term goal of lifting the living standards of a very large population.

It is premature to suggest that demand for our resources from China and increasingly India is going to cease anytime soon. China and India remain, on the whole, very poor countries with a per capita income of just $US8,400 and $US3,700 respectively, so there is clearly a lot of catch-up potential ahead. The amount of iron ore, coal and energy needed to power the industrialisation machines of these mega-nations is truly immense.

High costs will not send work overseas
Some commentators have claimed that labour costs are too high in Australia and mining companies will outsource work overseas. While our labour costs are high by international standards, recent decisions by some companies to outsource particular work to overseas companies, in my opinion, is more likely to do with the shortage of labour. In WA alone, there were recently more than 5000 job vacancies in the sector and interestingly almost half of the jobs were based in Perth.

Australia isn’t reliant on iron ore alone

With all the media coverage about the iron ore mines, it’s easy to forget that Australia mines and produces more than just iron ore. Significantly, LNG is becoming an increasingly important commodity. According to some reports, of the resource projects currently under development in Australia, around two-thirds are represented by very major LNG projects.

Has the real boom even happened yet?
Whether or not we’re nearing peak levels of mining investment, the fact remains that the important export boom has much further to run. Waning mining investment will definitely reduce future GDP growth but this will be more than offset by the ramp-up in output and exports. Once all the current major projects are completed and fully operational, I think we’ll start a whole new phase of prosperity that will last decades not years.

There will always be volatility in the short term but I am very optimistic about the long term prospects of our resources industry and the economy it will help support.

Rents Continue to Rise in Perth
Property investors will be happy to hear that the extraordinary growth in Perth rental prices over the past year seems to be continuing.

Data from the Real Estate Institute of Western Australia (REIWA) released recently show median rents for house rose by $10 a week between May and August and $20 a week for units, apartments and villas.

REIWA president David Airey said the vacancy rate has also tightened in the three months to August, to just 1.8 per cent across the city.

Mr. Airey believes strong population growth, first home buyer activity and weak investor interest have all contributed to put immense pressure on the rental market.

“Our state has the highest rate of population growth in the country and this is placing increasing demand on the rental system,” he said.

“The number of properties listed for rent has fallen by 15 per cent from almost 2700 properties in early July to 2300 by the end of August.

“In addition to this, first home buyer activity is strong and this means that a lot of the stock for sale at the more affordable end of the price range is being snapped up by young buyers rather than investors, who remain scarce in the current market.

“Investors are not replenishing the housing system with much needed rental stock as dwellings are being removed from the market by owner-occupiers.”

“I can’t see any signs on the horizon that will reduce the demand for rentals,” he added.

“It appears Perth is a popular place to live, we’ve got an ongoing shortage of rental supply, so it’s likely that rents at the very least will remain stable but are likely to have increases.”

Suburb Snapshot: Victoria Park
Plans for development over the coming years by the local and state government are likely to enhance the potential of the area and see a solid rebound in capital growth.

Victoria Park is an inner-city suburb developed in the late 1800’s and situated approximately 3km south east of the Perth CBD. It fronts the Swan River and consists mainly of residential properties but also some commercial.

Being just minutes from the Perth CBD and with easy access to Canning Highway, Great Eastern Highway and Albany Highway, Victoria Park is ideally positioned. It makes transportation to and from key destinations such as the Perth CBD, South Perth, Fremantle and the airport a breeze.

It is also well placed to take advantage of many local and nearby amenities including, but not limited to, a train station; parks; the Swan River; four schools; numerous cafes, restaurants and retail shops (on Albany Highway); Centro Victoria Park shopping centre; and Crown Resort and Casino.

Victoria Park is an old suburb and as such it is home to a variety of housing types that have emerged over the years including turn-of-the-century cottages, modern houses, small groups of villas and townhouses, as well as apartment complexes. Some parts of the suburb even offer views of the city.

Prices start from around $250,000 for a 1-bed apartment, the mid $400’s for a villa, and houses from $600,000. Rents typically range from $250 – $750 per week on average. There is a good level of turnover of properties in the area and the average days on market is currently around 88 days, similar to the Perth average (Source: Australian Property Monitors, to May 2012).

For investors, Victoria Park offers an opportunity for those wanting to get close to Perth city at an affordable price. It also has parcels of land available for development, old character homes waiting to be renovated and is a highly desirable area for people to rent, including students, because of its proximity to Curtin University in Bentley.

Although the area has not performed as strongly in recent times, plans for development over the coming years by the local and state government are likely to enhance the potential of the area and see a solid rebound in capital growth. Such projects to keep an eye on include the light rail network, the new Perth Stadium earmarked for construction on the Burswood Peninsula, and urban infill developments as part of the state government’s ‘Directions 2031’ strategic plan.

The unique combination of Victoria Park’s proximity to the city, lifestyle amenities and suburban feel should underpin and protect the long-term investment prospects of the suburb.

Source: REIWA.com.au, September 2012

Property Management: Fixing Problems Before they Happen
Unexpected repairs can really put a dent in the bank balance. But there is a way to eliminate, or at least lessen, the blow of these costs by thinking ahead.

The phone rings and it’s your property manager with the news you’ve been dreading: something needs fixing at your property and it’s going to cost serious money.

This is a situation most property investors would be familiar with. Owning an investment property can bring enormous rewards, but like any other business, it also has its associated costs and some of these can be unexpected. The nature of these unexpected repairs or replacement costs can really put a dent in the bank balance.

But there is a way to eliminate, or at least lessen, the blow of unexpected costs through a program of preventative maintenance. It’s not a new idea but many investors have yet to fully appreciate the importance of investing in the ongoing maintenance of their property. A small investment in the right areas can go a long way to avoiding massive problems later on.

Some owners would rather just wait and see, hoping they’ll be lucky and not have to spend a cent on their property. But inevitably something happens to shatter that dream. And the feeling gets worse when they discover the major unexpected costs could have easily been avoided with some minor maintenance.

As a property manager, I can’t stress enough the importance of developing a maintenance plan and budgeting for it. Areas of potential concern should be identified as early as possible and a program of maintenance should be put in place. Maintenance costs should be considered even before agreeing to purchase a property because if you can’t afford the maintenance you can’t afford the property.

The amount of preventative maintenance that you should do varies from property to property, but I am yet to see a property that wouldn’t benefit from basic maintenance, such as the clearing of gutters before winter.

Have you ever heard a selling agent use the phrase “set and forget” to describe a property that is for sale? While you might be able to “forget” about some properties for a short while, this never lasts long.

Despite the best efforts of a diligent property manager, properties inevitably change over time through natural wear and tear. Even a brand new property will need some care after 5 years, whether the carpets need replacing or the walls need painting.

Investors can often be shocked to visit a property after 5 or 10 years to find their memory of it is no longer accurate. Photos can certainly help inform investors but they never truly give the full impression. This is why we recommend our owners attend at least one inspection per year, to get an up-to-date picture of their property.

Finance: The Lure of the Fixed Rate Returns
Lenders are once again trying to lure borrowers to their fixed-rate loans by slashing rates – sometimes up to half a per cent lower than variable loans. And some borrowers are definitely taking notice of the low advertised rates.

Is it a good time to choose a fixed-rate loan? While every borrower is different and will have unique circumstances that determine the suitability of a fixed-rate loan, it pays to have a general understanding of what you get (and what you don’t get) when you choose one of these products.

It’s worth noting that although exit fees have now been abolished, borrowers will still face break costs should they exit a fixed-term loan to get a lower interest rate. These costs are designed to cover the lender for the money they are foregoing and could add up to tens of thousands of dollars depending on the situation.

Other drawbacks of fixed-rate loans worth considering are that they often have restrictions on making extra repayments and usually have no features such as offset accounts or redraw. When considering a fixed-rate loan you should also be clear on what happens after the fixed rate period expires, as some loans may revert to an uncompetitive variable rate.

If you are thinking about choosing a fixed-rate loan, you should talk at lengths with your broker about the pros and cons in relation to your own circumstance and perhaps consider fixing a portion of the loan or fixing for less than 3 years to minimise the risk. While we think the low rates make consideration of fixing your rates worth giving serious thought to, there’s more to consider than just the rate.

Property Acquisitions: Doing the Research is Only Part of the Challenge
One of the obstacles to good research is the fact that it requires considerable time and effort. But another challenge for investors is making sense of all the detailed information that is uncovered.

We all know research is important when buying an investment property. It can help identify the areas with the best drivers for growth and shed light on which parts of a suburb offer the best investment options. Research can also play a part in helping investors compare one property with another.

One of the obstacles to good research is the fact that it requires considerable time and effort. But another, often overlooked challenge for investors is making sense of all the detailed information that is uncovered. Ironically, the more research that is done, the more difficult it can be to know which pieces of information you should base your decision on. This is where an expert buyer’s agent can help.

We recently had an investor approach us looking for advice and assistance with regard to locating and purchasing an investment property with high-growth potential. After an extensive search we located 3 viable options and subsequently presented them to the investor with corresponding market evidence and detailed analysis weighing up the advantages and disadvantages of each option. The information was thorough to say the least.

The problem was that the investor could not decide between the 3 excellent options, which were all located in one suburb. However, we were able to offer some useful suggestions to help the investor to make a decision.

Firstly, we suggested that we try to determine which of the 3 sellers was more motivated to sell. This could potentially save the investor thousands of dollars and sway the decision towards a particular property.

Secondly, we suggested the investor focus on the micro-locations of each of the properties, as this can make an enormous difference to the ultimate long term performance of the property.

These suggestions ultimately helped the investor to make a decision to choose one property, which had a location slightly better than the others. This property was not only in a popular school zone but it was also near the proposed light rail route, which could help boost the property’s appeal over time. The investor then confidently proceeded with purchasing the property.

Finding a property that outperforms the rest of the market requires a lot of leg work, but you also need to be able to interpret the information you find to make an informed decision. This is why more and more investors are relying on our established expertise in this area.

What is MySuper?
MySuper is a new low cost and simple superannuation product that will potentially replace many existing default fundswhich has been developed as part of the Super Reforms. MySuper is not a new or separate superannuation fund in and of itself – instead it is a framework and a set of requirements for low-fee, low-frills superannuation products. Retail and Corporate superannuation funds can develop a superannuation “product” to meet the MySuper requirements.

How will it affect me?
If you are going to be moving your existing superannuation fund/s over to a MySuper qualified product you need to be aware of a few important issues such as:

MySuper is an Opt-Out system. This means that your superannuation, and the insurance it contains, will change across to a MySuper account unless you actively choose otherwise.

What does it have to do with my Wealth Protection insurance?
Many Australians have some insurance and don’t even know it – it’s held “out of sight” in their superannuation fund. If your funds in superannuation are moved to a My Super account, the insurance, however, will not be moved automatically– instead, the policy will be closed and a new policy will be started in the MySuper account.

You might be thinking, “Can’t I just reapply for the insurance if I want it?” Risk insurance is very different to insuring your house or your car – simply because your personal circumstances and your health change so much over time. If you lose insurance you took out at 25, and reapply now that you’re over 40, you’re likely to face more obstacles and costs to getting insurance this time around. Health conditions like diabetes, high cholesterol, high blood pressure or even being overweight can either disqualify you from obtaining insurance or can drastically increase your premiums. Once an insurance company has issued insurance they can’t cancel it while you (or your super fund) continue to pay the premium (only you, the customer can, however, Life companies can cancel your cover only once the term has expired).So, if you have develop a health condition that an insurer typically won’t cover, exclude certain events or charge you more to cover you may be better off maintaining any existing cover you may already hold via your current Super.

So, what do I do?
A review of your current insurances (inside and outside of superannuation) will help you assess which policies you’d like to keep in place, and which you’d like to change. For those policies held in an old superannuation fund, you can in some cases move them to your chosen superannuation fund – so that you don’t lose the benefits when you consolidate your funds and close down the redundant superannuation accounts.

If you do nothing, you could be losing benefits you didn’t even know you had! So it’s important to take an active role in protecting your assets for yourself and for your family.

Wealth Protection is a complex area, with detailed policies and loopholes which can trip you up if you’re not careful. It’s best to seek the advice of an insurance specialist to make sure that the cover you receive is what you intended and expected. After all, if you are in the unfortunate position of making a claim in the future, you don’t want to add to an already stressful situation by finding out that your insurance doesn’t pay out like you thought it would.

Justin McManus is a Corporate Authorised Representative of Marsh Pty Ltd Australian Financial Services Licensee No. 238983. This information has been prepared without taking account of your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your objectives, financial situation and needs

Property Section – September 2012

• What Investors need to know about Online Loans
• Median Price on the Way Up
• The Other Important ‘L’ Word in Real Estate
• Understanding the Power of Offset Accounts
• Should a Tenant be Compensated for Urgent Repairs?
• Suburb Snapshot: Craigie

What Investors need to know about Online Loans

Online home loans seem to have many of the features of regular home loans, but there are a number of potential drawbacks that borrowers – especially investors – need to be aware of.

These days it seems you can get almost anything online, from the latest gadgets to this season’s must-have fashion accessory. And now you can even pick yourself up a home loan.

Online home loans have been around for a few years now but it’s only recently that borrowers have started  to take notice of them. With low rates, minimal fees and the apparent convenience of an online application process, it’s easy to see how these products could be so eye-catching.

Online home loans seem to have many of the features of regular home loans, such as the ability to make additional repayments or pay interest only, but there are a number of potential drawbacks that borrowers – especially investors – need to aware of.

Let’s start off with a biggie. The reason some people have been attracted to these loans is because of the cheap rate offered. Often when businesses try to build market share they offer discounts for a while. However when you read the fine print of most lender loan contracts, the lenders can effectively change interest rates to whatever they want when they want. You might put in a lot of work and effort only to find that your rate ends up being the same as everyone else’s. Unless a on-line lender is willing to put in writing a guarantee to you that they will always be cheaper than everyone else and will compensate you if they aren’t then the allure of the cheap rate may fade quickly.

To build a property portfolio requires proper credit advice on how to structure your loans and which lenders are most suitable to help you achieve your goals. An on-line lender will only be offering their own products which means the products from other lenders in the market won’t be considered. Also its likely that on-line lenders will not tell you how to structure loans which is the advice an investor needs to build their property portfolio. A professional Broker who is experienced in dealing with investors is able to access a wide variety of lenders and give you the structuring advice you need to build your property portfolio.

Online home loans typically don’t offer offset accounts, which are one of my favourite loan features. Offset accounts allow you to use any cash you have available to offset the interest on your loan, while giving you easy access to your money. Disciplined borrowers who funnel all their money, such as their wages and rental income, into an offset account can end up saving tens of thousands of dollars of interest over the period of the loan (you can read more about offset accounts later in our newsletter).  

Many online home loans do offer a redraw facility, allowing you to redraw any additional repayments you have made. However, a redraw facility, unlike an offset account can cause problems when it comes time to submit a tax return. If you are redrawing money from an investment loan and using it for personal use (e.g. paying your phone or credit card bill, buying a car) you can jeopardise the deductibility of your interest payments. With regular use of a redraw facility, you could find that a large amount of interest you are paying on your investment loan is no longer tax deductible.

An offset account offers a much cleaner solution for investors who use their money for both investment and personal use. The money in an offset account can be used for any purpose without affecting the deductibility of the interest paid on the investment loan it is attached to.

With redraw facilities it can take 2-3 days for money to be made available, whereas an offset account is like an everyday transaction account with instant access to your money via an ATM card or the web.

Another drawback of online home loans is that you have to do a lot of the research yourself. Home loans are complex products and, although there is an abundance of information out there, few people would be confident to do their own detailed comparison. Some online home loans do offer telephone hotlines and access to online manuals and FAQ pages, but these can only be of certain help and don’t provide a comparison between different lenders.

Using the services of an experienced finance broker will not only help to make sure you are choosing the best product for your needs, but the broker will also lead you step-by-step through the application maze. Even more importantly, a broker will be able to consider your long terms plans. An online lender is not going to review your loans and goal regularly. The wrong loan could severely hinder your future investment plans or prove costly should your circumstances change. While Brokers aren’t tax advisers, a good Broker will be aware of the tax implications of your transaction. An online lender is not likely to consider that when providing a loan.

The idea of completing a home loan application online and alone could also be very intimidating. Think about all the paperwork that would be required, such as pay slips, proof of rental income, bank statements, details of other loans, tax assessments, and credit card statements just to name a few. Any mistake in the application could prove costly, including missing the loan settlement date which could mean penalties or worse still forfeiting your deposit and losing the property! First home owners would also need to handle their own FHOG application with an online home loan which most would not know how to complete.

A few other things to consider about online home loans is that most only go up to 80% LVR, so borrowers will need at least a 20% deposit. They can also be quite inflexible making it difficult to change products or switch the security in the case when you are buying and selling.

Choosing a home loan or investment loan could be one of the biggest financial decisions of your life. For people who have a lot of time on their hands and a very simple structure, on-line loans may be of use. However for a person looking to build a property portfolio, a specialist Broker is a vital part of your team that you can’t do without.

Median Price on the Way Up

Preliminary data from the Real Estate Institute of WA confirm what many people already suspect, that Perth property prices may be on the way up.

The metropolitan median price has increased by 3.2% this year to $480,000, but is still below the June 2010 peak of $505,000.

REIWA president David Airey said the market was showing signs of normalising and that the industry was heartened by a 20% jump in sales over the past 12 months.

“There is no question that the market has bottomed out,” Mr Airey said.

“People who were looking to pick the bottom have missed it.”

There has been a recent drop in the number of homes on the market, from 12,000 at the end of June to below 11,500. And the average time on the market has also fallen from 79 days to 73 days in the June quarter. 

The Other Important ‘L’ Word in Real Estate

The layout of a property plays an enormous role in determining demand from renters and buyers, and therefore the value of your investment. Just think about how much effort people put into designing a floor plan for a new home.

Buying real estate is all about location, right? If you choose the right location, you’re well on your way to success. But while location is an important consideration, there is another ‘L’ word that can also affect the success of your investment: layout.

The layout of a property plays an enormous role in determining demand from renters and buyers, and therefore the value of your investment. Just think about how much effort people put into designing a floor plan for a new home and it’s easy to see why layout is such an important consideration. 

A property’s layout involves the size and positioning of rooms, and the overall flow of the property. A good layout makes living more convenient and enjoyable, and a bad one can easily make a property feel cramped and uninviting. Have you ever heard someone walk into a property and say “It doesn’t feel right”? While they might not always be able to put their finger on what’s wrong, chances are they are talking about the layout.

It can be very difficult and expensive to correct a poor layout, especially when it involves moving load-bearing walls, so it’s important to carefully consider layout when buying a property. So what makes a good or bad layout? A lot of it comes down to fashion trends and personal tastes, but some preferences are pretty universal.   

For instance, a lot of people prefer an open-plan layout where the kitchen, dining and living rooms are combined or at least very close together. People like to be able to be in the kitchen and still be connected to what’s happening in the rest of the house.

Something most people don’t typically like is where there is a bathroom or bedroom coming directly off a main living area, without some sort of privacy screening or corridor. Similarly, people don’t like it when the front entrance of a property opens directly into a living area, without some sort of buffer zone.

For some layout options, preferences are more split. For instance, some people prefer the master bedroom to be separated from the other bedrooms, but families with young children may prefer the alternative. In this case, the best layout depends on the particular market for the property.

No property has a perfect layout so when searching for a property there will always be compromises to be made. The key is to try to choose properties with layouts that appeal to a wide range of potential tenants and buyers.

When it comes to evaluating layouts, be aware that internet listings can be very misleading, even when you have the benefit of a floor plan. They don’t give you an accurate indication of size, space and flow. There is really no substitute for walking through a property with an expert eye for what to look for and what to avoid. That’s where a skilled buyer’s agent becomes invaluable. 

Understanding the Power of Offset Accounts

An offset account looks like a regular everyday bank account and even operates like one, but there is one massive difference.

Most people would have heard of offset accounts, but only a few fully understand how valuable they can be. An offset account looks like a regular everyday bank account and even operates like one, but there is one significant difference. It is linked to a home or investment loan and any money in the account will automatically reduce the amount of interest payable on the loan and therefore help the borrower to potentially pay off the loan and build equity quicker.   

It may help to look at a simplified example. Let’s say you have a loan of $350,000 and $50,000 sitting in an offset account. The interest on your loan would be calculated on $300,000 not $350,000, just as if you had deposited the money directly in the loan. If you are paying principal and interest on the loan, your repayments would stay the same, but a greater proportion of your repayments would go towards paying down the loan principal. If you are paying only interest on the loan, your interest payments would be calculated on $300,000, the difference between your loan balance and the balance of your offset account.  

Here’s another way to think about it. Whatever interest rate you are paying on your loan, you are essentially earning that same rate of interest on the money in your offset account. If you had put that money in a regular savings account rather than an offset account, not only would your interest rate be lower but any interest earned on your savings would most likely be taxed. Savings made from an offset account are not considered interest and therefore aren’t taxed.

It’s clear that an offset can help you to pay off your loan much faster, especially when you deposit any available cash into the account and leave it there as long as possible (remember interest is generally calculated daily, so every dollar and every day counts).

Some people will have all their income (wages, rental income) paid into the offset account and use a credit card to cover all their living expenses. They will then pay off the credit card at the end of the interest free period, to ensure their cash is working for them as much as possible. Strategies like this can end up knocking ten years off the term of a loan and save the borrower tens of thousands of dollars, if not hundreds of thousands.

On the surface, it might seem that a free redraw facility on a loan is just as good as an offset account, but there are key differences. If the loan is for investment purposes and the interest is tax deductible, withdrawing money from the loan using a redraw facility can cause tax problems, especially when the money is used for personal use. If you make extra repayments into the loan and then redraw the funds at a later date, that portion of the loan may no longer be tax deductible and the problem can get worse with every redraw.

With an offset account, which is separate from the loan, you can use funds freely for personal or investment use without worrying about the tax deductibility of the interest payments. Another disadvantage of a redraw facility is that it can take 2-3 days for the money to be made available, whereas an offset account is just like a regular bank account with instant access via an ATM card, cheque book or online banking.

It’s true that lenders generally charge a monthly or annual fee for the privilege of an offset account, but, if the account is used properly, any fees are likely to be insignificant compared to the massive benefits that can be gained.

Should a Tenant be Compensated for Urgent Repairs?

Dealing with repairs is a regular part of owning an investment property. But the issue of urgent repairs is an area that is often misunderstood by both owners and tenants, potentially leading to messy disputes. One of the most common disputes involves whether or not a tenant can receive compensation for urgent repairs performed without the owner’s knowledge.

Urgent repairs tend to be more expensive than regular repairs due to  the after-hours call-out rates charged by most tradespeople and the lack of time to shop around for the best quote. The main problem with urgent repairs arises from the fact that people have different definitions of what is “urgent” and so conflicts can easily arise and even end up in court.

Certain circumstances are clearly more urgent than others, like a leaking sewerage system or major electricity concern that could cause serious injury. Generally, if the problem is likely to cause major injury, property damage or real inconvenience to the tenant then an urgent repair is warranted.

But other situations are not so clear cut. For example, does a broken hot water system require an urgent repair? Some may think so, others may not. Let’s say it is a chilly winter’s evening and a tenant arrives home cold and damp after getting caught in the rain. Looking forward to a nice hot shower the tenant discovers that the hot water system isn’t working and so decides to call for an after-hours repair and subsequently pays the bill. The tenant, who didn’t cause the problem, believes the owner should reimburse the expense, but the owner isn’t happy about paying the inflated cost of the after-hour repair when it could have easily been performed more cheaply the following day.    

What the tenant should have done in this situation is call the managing agent to seek clarification about the matter of compensation before ordering the repair. However, it might not always be possible to reach the managing agent, so it’s easy to see how conflicts can arise.

Another reason disputes arise is that there may be differences between what it says in a particular Tenancy Agreement compared to the Residential Tenancies Act 1987. A tenant who is seeking compensation for an urgent repair may turn to the Act which does in fact state that the owner must compensate the tenant for reasonable expenses under certain urgent circumstances.

However, this part of the Act is often legally modified in many tenancy agreements, including the standard one prepared by REIWA, so that tenants must first receive permission by the owner or managing agent before any repair can be ordered.

It’s easy to see that if urgent repairs are not dealt with in a proper fashion, the relationship between tenant and owner can become severely strained. This is where using a professional property manager will help avoid these situations arising by ensuring all parties understand their responsibilities at the beginning of the tenancy, and also by having good relationships with various tradespeople. And if disputes do occur, a property manager is in a better position to liaise with both the tenant and owner and try and mediate a suitable outcome.

It’s worth noting that the Residential Tenancies Act in WA and supporting regulations are to be changed in late 2012 or early 2013 to give clarity to what is an urgent repair and what isn’t.

Suburb Snapshot: Craigie

Craigie has generally outperformed the wider Perth market, with an annual average growth of 12% over the past 10 years (compared to 10.2% for Perth), and it should continue to deliver above average returns to investors.

Developed in the 1970s, Craigie is a northern coastal suburb situated 22km from the Perth CBD and around 4km from the Joondalup City Centre. It neighbours the premium suburb of Kallaroo to the west, Beldon to the north, Woodvale to the east and Padbury to the south.

Craigie has an abundance of parks & reserves and offers residents easy access to a major shopping centre (Whitford City), and a popular leisure centre within the suburb. The suburb also has its own shopping and medical plaza, as well as a popular tavern. Transport in and out of the suburb is a breeze with direct access to the Mitchell Freeway and 2 train stations.

The suburb is predominantly made up of old 3 bedroom houses on large blocks, which typically sell in the low to mid $400,000’s depending on condition and location. Vacancy rates are generally very low with a 3 bedroom house renting for around $380 per week.

A few years ago, the City of Joondalup prepared a draft Local Housing Strategy, in which a large part of Craigie, the entire western side of Eddystone Avenue, was identified as being suitable for higher residential densities. The strategy could see most of the area obtain a dual zoning of R20/R30, except the southern end closest to Whitford City Shopping centre which could obtain a dual zoning of R20/R40.

In February of 2011, Council resolved to adopt the strategy and forward it to the Western Australian Planning Commission (WAPC) for endorsement. It is anticipated that the endorsement of the strategy by the WAPC will be finalised sometime between 2013 and 2016. It is only then can landowners apply for development or subdivision approval.

There is also a development in the later stages of planning for the former site of Craigie High School. It’s an urban renewal project covering over 10 hectares and could see the development of up to 132 dwellings. It will also include public open space and an associated road network.

The WAPC and City of Joondalup have both approved the structure plan and in April of this year, a Subdivision Plan was submitted to WAPC for approval. Civil works are expected to commence in early 2013 and the first round of lots should go on sale in late 2013 with lot sizes ranging from 250 to 500 square metres.

Craigie has generally outperformed the wider Perth market, with an annual average growth of 12% over the past 10 years (compared to 10.2% for Perth), and it should continue to deliver above average returns to investors. This is helped by the fact that it is one of the few remaining affordable suburbs within 2km of pristine beaches, included the popular Mullaloo Beach.   

With an older housing stock that is being renovated or rebuilt, the proposed rezoning, and a massive new residential development in final stages of planning, the area will see significant revitalisation over the coming years. This should further increase its appeal to buyers and renters.

Growth rate (1 year average)           -3.5%

Growth rate (5 year average)             1.8%

Growth rate (10 year average)            12%

Population                                      5,602

Median age of residents                      34

Median weekly household income $1,316

Percentage of rentals                      24.2%

Source: REIWA.com.au, July 2012; ABS, July 2012